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Weekly Commodity Report w/e 22nd September 2017


UK November wheat futures have been trading sideways for the past five weeks at about £139/t plus/minus £3/t. The UK physical market is a little strange with an unusually large £10/t North-South differential, so wheat is £148/t delivered to a mill north of Manchester, and is languishing at £138/t down South.

It seems that there is more milling wheat in the North, where the demand is for feed wheat (for the biofuel boys). In the South, there is more feed wheat than milling wheat. In a minute, someone will start shipping Hampshire feed wheat around the coast. In the South West the cereal harvest is still on-going, which could mean that this year is the longest harvest in living memory (if anyone keeps the stats?). Farmers are reluctant sellers as they concentrate on putting next year’s crop into the ground. Last week’s rally in the strength of the £ means that UK wheat is even more export uncompetitive, and is only €4/t less than French wheat (Matif) compared to €10/t a few weeks ago. In the US, the Federal Reserve seems to have made the decision to unwind the Quantitative Easing that took place in the six years following the 2008 crisis, having built up a $4.2tn portfolio of US Treasury bonds and mortgage securities, and intends to reduce its holdings by $10bn per month. An interest rate rise is in the offing, so gold fell to a 3-week low.


About 80% of the record 89mt Russian wheat harvest is in the barn; of which some 31mt will be exported. The world largest importer, Egypt is expected to import 12mt this year, so the remaining 19mt of Russian wheat is destined for North Africa and Asia. Russian wheat is about $20/t cheaper than the French so its price advantage allows it to travel further East, stepping on Australia’s traditional export markets. The recent Russian quote to Egypt was only $10/t lower than the French as they added risk insurance for rejection due to ergot (and poppy seeds from France and Romania last week). The former Communist state has learned capitalist ways very quickly, and is using its advantages to the maximum (low price, infrastructure, ports, earlier harvest than Australia etc). Frost in New South Wales and dryness along the East coast is threatening to reduce Australia’s wheat harvest to below 20mt (53mt last year). Due to Russia’s competitiveness, German and French exporters are struggling and will have to wait until Russian stocks decline. China continues to whittle-down its maize mountain; it sold almost 1mt this week and is offering 3mt of its 2014 vintage next week.


After the series of hurricanes which sped down the Caribbean alley and knocked over several islands like ten-pins, US farmers are wary as the storms could reach the US and impede US harvests. The US has started harvesting both its maize and soya crops with about 5-10% complete. The US Climate Prediction Centre has increased the probability of a La Niña event occurring in the next 3 months from 20-30% last month to the current 55-60%. La Niña normally means a cold US winter and increased rainfall on the East coast; and in South America reduces rainfall on the border between Brazil and Argentina during December and March which could affect both maize and soya. Currently, areas of Argentina are still recovering from flooding, which is not so good for the wheat crop (due to be harvested from November), whilst the dry soil in Brazil is preventing some farmers from planting early-sown soya.

The JBS meatpacking and bribery scandal in Brazil continues. The former chairman Joesley Batista and his brother and CEO Wesley Batista had previously admitted to bribing some 2000 Brazilian politicians, and entered a plea bargain earlier this year. Now both have been re-arrested, accused of insider trading by profiting from JBS shares and currency futures as their criminal activities have become public, culminating in President Temer being charged with corruption. Their father and company founder, 84-year old Jose Batista, has been appointed as the new CEO.

Kimba is an agricultural village in Australia with a population of less than 1000, located in the middle of nowhere on a highway 5 hours from Adelaide. Cars drive past without stopping. In an attempt to attract tourists they turned an ugly wheat silo into a sunset landscape.